In December last year, the foundation won its case that it was owed the money for the year ending March 2010, under a covenant entitling it to 1 per cent of the bank’s pre-tax profits, which worked out as £3.5m.

However, the bank claims that the foundation is owed only £38,920, and has appealed to the Supreme Court.

The disagreement began after the bank announced plans to cut the percentage of profits it gave to its four UK foundations because of massive losses incurred by the group during 2008. However, it could not agree a new funding settlement with the Foundation for Scotland.

As well as disputing the amount owed under the existing covenant, the bank said in February 2010 that the foundation would receive no more funding once that covenant expired in nine years.

Mary Craig, chief executive of the foundation, said the latest appeal meant her charity would not be able to provide funds to other organisations for another year.

"We now find ourselves back in limbo as Lloyds Banking Group seeks to tie us up in court action for at least another year, with additional legal costs and more time wasting," she said.

"I would urge Lloyds to think carefully about pursuing this plan of action and to show their support for Scotland’s communities by withdrawing their appeal.

"I would also urge others to ask what lies behind this decision, which is, at best, misguided and, at worst, ill-judged, oppressive and unnecessary."

A Lloyds Banking Group spokeswoman said: "Lloyds Banking Group is proud of its track record as one of the largest corporate funders in the UK, including Scotland.

"Lloyds Banking Group has channelled more than £82m over the past 25 years to the Lloyds TSB Foundation for Scotland, supporting its work in some of the most disadvantaged communities in the UK.

"In addition, the Bank of Scotland Foundation is now well established and we will remain committed to being one of the largest contributors to Scotland's charities for the long term."

- The foundation will not receive any new funds from the Lloyds Banking Group while the dispute continues but it does have some funds it can give out in the meantime.

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